The Third Circuit Joins The Sixth And Holds That The Availability Of Class Arbitration Is A Substantive Question Of Arbitrability For Courts To Decide, Absent Clear Agreement Otherwise

“Because of the fundamental differences between classwide and individual arbitration, and the consequences of proceeding with one rather than the other, … the availability of classwide arbitration is a substantive ‘question of arbitrability’ to be decided by a court absent clear agreement otherwise,” the Third Circuit held.

Two former Robert Half International, Inc. (“RHI”) employees brought an action, on behalf of themselves and others, alleging that RHI failed to pay them overtime and improperly classified them as overtime-exempt in violation of the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201 et seq. They had signed employment agreements with arbitration provisions that provided that “[a]ny dispute or claim arising out of or relating to” their employment shall be submitted to arbitration, but the agreements did not mention classwide arbitration.

The District of New Jersey granted RHI’s motion to compel arbitration on an individual basis, but ordered that the propriety of individual versus classwide arbitration was for the arbitrator to decide. The arbitrator eventually issued a partial award and ruled that the agreements permitted classwide arbitration. The District of New Jersey denied RHI’s motion to vacate the arbitrator’s award, and RHI appealed.

The “crux of the appeal,” according to the Third Circuit, was not whether the agreements at issue permitted classwide arbitration, but who decides – the arbitrator or the court. The analysis is twofold, according to the Third Circuit. It must first be decided “whether the availability of classwide arbitration is a question of arbitrability.” If it is, then “it is presumed that the issue is for judicial determination unless the parties clearly and unmistakably provide otherwise.” If it is not, then “it is presumptively for the arbitrator to decide.”

The Third Circuit explained that “questions of arbitrability generally fall into two categories – (1) when the parties dispute whether they have a valid arbitration agreement at all (whose claims the arbitrator may adjudicate); and (2) when the parties dispute whether a concededly binding arbitration clause applies to a certain type of controversy (what types of controversies the arbitrator may decide).”

In the underlying case, the determination of whether RHI must include absent individuals in its arbitrations with its two former employees affects whose claims may be arbitrated. And because the agreements were silent as to the availability of classwide arbitration or whether the question should be submitted to the arbitrator, the Third Circuit found that the parties had not clearly and unmistakably provided otherwise.

In holding that the availability of class arbitration is a question of arbitrability for the District Court to decide, the Third Circuit joined the Sixth, which it said is the “only other Circuit Court of Appeals to have squarely resolved the ‘who decides’ issue,” having held in Reed Elsevier, Inc. v. Crockett, 734 F.3d 594, 559 (6th Cir. 2013), that “whether an arbitration agreement permits classwide arbitration is a gateway matter that is presumptively for judicial determination.”

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